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The Era of Online Stock Trading: Robinhood Misleads Gen-Z

The novel coronavirus has led to a situation of crisis and has drastically impacted consumer behaviour and supply chains, thus creating an imbalance. While this disparity has proven to be a nightmare for most of the business houses, some of them are really making it big. As people adjust to this new normal, technology has been their friend in disguise to learn new skills and explore their areas of interest. App developers are among those few who are benefitting from this pandemic.

The lockdown has also led to a surge in first-time investors/traders entering the stock market. Stocks with “zero equity value” and even penny stocks have doubled since April this year. This increase is mainly due to easy access to the process via stock market apps which have seen maximum sign-ups in the past few months. Robinhood - one such stock market app has been in the headlines for quite some time now. They gained 3,000,000 new users within the first 6 months of 2020, which is literally half of the new trading accounts created this year.

The company has become one of the fastest-growing tech startups in recent times. The ease of trading that the app provides, has turned into a cultural phenomenon, and Robinhood has climbed to the billion-dollar mark. With investors pouring in money, its valuation has reached $11.2 billion. The app has been a hit since its launch in 2013 and has been growing since then. It recorded 4.3 million DART’s (Daily Average Revenue Trades), surpassing all its competitors.

This huge traffic of day traders has also been affecting the American stock market. This is being referred to as the “Robinhood Effect”. It is described as the irrational stock price changes in the market. This effect began when apps like Robinhood attempted to democratise investing by providing platforms that simplified the methods and thus people with no background or knowledge joined the trading world. Today, youth with minimum capital are playing around as shares have become affordable due to the current economic situation. According to research, users buying small inexpensive stocks are generating solid returns which gives them an incentive to stay. Thus, it seems like the hype is not going to die anytime soon for this huge army of day traders.

The app even offers the facility to buy fractional shares which lowers the risk. Robinhood doesn’t charge trading commissions, which further increases its popularity. These day traders are becoming known as the “risk-takers”. The accounts are mostly handled by youngsters who are stuck in their homes due to the norms of social distancing. They are ready to take immediate action and trade shares without much consideration. These investors are inexperienced and don’t have much prior knowledge. Not only are they indulging in basic trades but also in advanced level trading like futures and options. This behaviour has proven to be beneficial for the company but can cause serious losses to the traders. Many investors have shared their traumatic experiences which were mainly caused due to their uninformed choices. A 20-year-old college student from Nebraska killed himself as his balance dropped to negative $730,000.

The consequences being faced are intense and the developers should take accountability for the same. Educating the newcomers and providing enough information should be an important aspect of the whole trading process. The new day traders who start playing with their capital end up bearing losses which can thereby lead to some detrimental conditions. Certain restrictions within the app will definitely ensure some responsibility by these individuals. Another problem being faced by the company is of technical glitches. These tech issues have increased with the rise in the number of users and sometimes, these also lead to losses due to the fluctuating nature of stocks. In order to solve these issues and have better customer service, Robinhood plans to expand its team. They have more than a hundred positions available in many American cities. This move will benefit the consumers and might also help the issue of unemployment at some level.

While every firm has its own set of difficulties, dealing with them in a strategic manner is the best way out. Robinhood too has its own set of criticisms. Even in this capitalistic world, ethics still hold high regard and companies should take decisions after considering certain moral grounds. The idea of providing easy access to the stock market is ideal but it still has its own problems that need attention.

The app has totally changed our outlook towards the stock market and trading. It has provided an avenue to millions of people to invest and has also led to certain prominent changes in the market which might be fruitful. But, at the same time, its harms are no less in terms of losses being suffered. The uncertainty of the stock market has also blurred my perspective on Robinhood’s future. It definitely hasn’t proven to be as generous as the animated character! Until then, the uncertainty will remain a constant source of anxiety.

ananya.singh

Ananya Singh

An Economics student trying to make sense of the world! Extremely fun & talkative but only if I like you ;)

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